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Alcoa Signs Tentative BPA Contract - Analyst Blog

Aluminum giant
Alcoa Inc.
(
AA
) announced the signing of a tentative long-term power contract
with Bonneville Power Administration (BPA) for its Intalco Works
aluminum smelter in Ferndale, Washington. The contract is expected
to be finalized by the end of the year and will expire in September
2022.

According to the contract, BPA will provide power supply to the
smelter and help sustain the economic impact of the plant in the
region. The contact will also allow a 90-day extension along with
public comment process on the new contract, followed by a review by
BPA.

A few days back, Alcoa reported a loss of $143 million or 13 cents
in the third quarter of 2012, hurt by a hefty charge associated
with environmental remediation and legal settlement, and lower
aluminum pricing. It compared with a profit of $172 million or 15
cents a share in the year-ago quarter.

Excluding one-time special items (a $175 million charge mainly
related to environmental remediation of the Grasse River and the
settlement of a civil lawsuit against Aluminum Bahrain), Alcoa
earned $32 million or 3 cents a share in the quarter compared with
the Zacks Consensus Estimate of a break even result on per share
basis. The company recorded a $40 million charge associated with
the legal settlement in the quarter.

Revenues decreased 9.1% year over year and 2.2% sequentially to
$5,833 million, but were ahead of the Zacks Consensus Estimate of
$5,565 million. Alcoa said that aluminum prices dropped 17% year
over year and 5% sequentially in the third quarter.

Alcoa witnessed strong productivity growth in its upstream and
downstream businesses in the quarter on the back of higher
utilization rates, process innovations, lower scrap rates and usage
reductions. The company saw healthy demand across the aerospace and
automotive markets in the quarter.

The company has lowered its global aluminum demand forecast for
2012 to 6% from its earlier expectation of 7%, owing to the
slowdown in China. The company, however, expects the aluminum
market to double in 2020 from the 2010 levels as the market is
already ahead of the required 6.5% compound annual growth rate.

Pennsylvania-based Alcoa Inc. is among the world's leading
producers of primary and fabricated aluminum and alumina. The
company competes with
Aluminum Corporation Of China Limited
(
ACH
) and
RioTinto plc.
(
RIO
). It currently retains a Zacks #3 Rank, which translates into a
short-term (1 to 3 months) Hold rating. We have a long-term Neutral
recommendation on the stock.

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